Herbert Hoover Copycat

How the Current Financial Rescue Schemes are
Following the Failed Model of the Hoover Administration

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Faced
with the financial meltdown of the Great Depression, the Hoover administration
created the Reconstruction Finance Corporation that poured taxpayers' money into
the coffers of the influential Wall Street banks in an effort to save them from
bankruptcy. Like today's Bush/Obama administrations, the Hoover administration
used the "too-big-to-fail" scare tactic in order to justify the costly looting
of the national treasury. All it did, however, was to simply postpone the day of
reckoning: almost all of the banks failed after nearly three years of extremely
costly bailouts schemes.

In a
similar fashion, when in the mid- to late-1990s major banks in Japan faced huge
losses following the bursting of the real estate and loan-pushing bubble in that
country, the Japanese government embarked on a costly rescue plan of the
troubled banks in the hope of "creating liquidity" and "revitalizing credit
markets." The results of the bailout plan have likewise been disastrous, a
disaster that has come to be known as "Japan's lost decade."

Despite
these painful and costly experiences, the Bush/Obama administrations (along with
the U.S. Congress) are following similarly ruinous solutions that are just as
doomed to fail. This is not because these administrations' economic policy
makers are unaware of the failed policies of the past. It is rather because they
too function under the influence of the same powerful special interests that
doomed the bailout policies of the Hoover and Japanese governments: the potent
banking interests.

Despite
its complexity, the fraudulently obfuscated and evaded solution to the currently
crippled financial markets is not due to a lack of expertise or specialized
technical know-how, as often claimed by economic policy makers of the Bush/Obama
administrations. It is rather due to a shameful lack of political will-the
solution is primarily political.

Specifically, it is due to government's unwillingness to do what needs to be
done: to remove the smokescreen that is suffocating the financial markets, open
the books of the insolvent mega banks, declare them bankrupt, as they actually
are, auction off their assets, and bring them under public ownership-since
taxpayers have already paid for their net assets many times over.

To put
it even more bluntly, the deepening and protraction of the crisis is largely due
to policy makers' subservience to the interests of Wall Street gamblers-shirking
their responsibility to protect people's interests.

Saying
that the solution to the current financial crisis is simpler than it appears is
not meant to downplay or make light of the problem. It is, rather, to point out
that Wall Street gamblers have made the solution relatively simple by digging
their own grave, doomed themselves to bankruptcy, thereby leaving
nationalization as the only logical or viable solution.

This is
no longer simply a radical, leftist or socialist demand. It is now demanded by
many economists and financial experts on purely pragmatic or expediency grounds.
For example,
Joseph Stiglitz, the 2001
recipient of Nobel Prize in economics and former Chief Economist of the World
Bank, points out:

"The fact of the matter is,
the banks are in very bad shape. The U.S. government has poured in hundreds of
billions of dollars to very little effect. It is very clear that the banks have
failed. American citizens have become majority owners in a very large number of
the major banks. But they have no control. Any system where there is a
separation of ownership and control is a recipe for disaster. Nationalization is
the only answer. These banks are effectively bankrupt."

"Most people who've been
following the financial crisis know what needs to be done. It's no secret. The
insolvent banks have to be nationalized. They have to be taken over by the FDIC,
the shareholders have to be wiped out, bondholders have to take a haircut,
management has to be replaced and the bad assets have to be written down.
There's no point in throwing public money down a rathole just to keep zombie
banks on life support."

In
Europe, which is similarly mired in a huge financial swamp, some policy makers
are now openly calling for "Chapter 11" and/or nationalization solution. For
example, in an article published in the 12 February 2009 edition of Corriere
Della Sera, the Italian Economy Minister
Giulio Tremonti calls for a bankruptcy reorganization of the insolvent
financial institutions:

"If the crisis is not a
liquidity but an insolvency crisis..., the medicine is not merging failed banks
with other failed banks, it is not in the switch or swap between private and
public debt, it is not in creating artificial, additional private demand. If you
are doped, the remedy is not more dope. . . . Saving everything is a divine
mission. If one thinks to save everything, through the last resort of
governments, through public debts, you end up with saving nothing and at the
end, you even lose public budgets."

As noted
earlier, partisans of "bailout-the-banks-at-any-cost" use the "too-big-to-fail"
scare tactic in order to justify trillions of giveaway bailout dollars.
Disingenuously used for nearly 20 months since the financial bubble exploded in
mid 2007, this rationale is now totally discredited, as the fraudulently
shifting schemes of rescuing the insolvent banks have proven both ineffectual
and dangerously costly-not only in terms of hollowing out our national treasury
and condemning us to bankruptcy, but also in terms of further prolonging and
deepening of the crisis.

Another
bogus rationale for the shifting schemes of the bailout scam, according to its
champions, is that "this is an altogether new and very complicated crisis."
Accordingly, they claim that "while we are committed to finding a solution, it
will take a long time before we see a market turnaround because it is an
unprecedented problem and may, therefore, involve lots of learning by doing"!

It is
hard to say which is worse: (1) this is a sincere argument, that is, they are
genuinely committed to finding a solution based on national interests but have
not yet come up with one; or (2) they are disingenuous, and are deliberately
engaged in obfuscating issues and confusing the people in order to protect the
interests of Wall Street financial gamblers at the expense of national
interests.

If they
are right in their claim that they are genuinely committed to finding a solution
based on national interests but have not yet found one (after nearly 20 months),
then it is safe to say that they are a bunch of incompetent knotheads who are
totally ignorant of the theoretical foundations and empirical lessons of bank
failures and/or bank nationalizations, and should, therefore, not be at the helm
of our economic decision-making apparatus. But if their argument is
disingenuous, then they are playing politics with our national interests in
order to serve special interests-a case of crime and punishment.

There
are good reasons, however, to believe that the confusion and uncertainty that
the Bush/Obama team of economic experts has created in the financial markets is
largely due to these experts' misplaced priorities and allegiance, not their
"sincere but unsuccessful" efforts. It is a problem of having some huge
elephants in our nation's financial policy-making room.
Mike Whitney aptly calls Treasury
Secretary Tim Geithner "a Trojan Horse for the banking oligarchs":

"The banking lobby has
already set the agenda. All the hoopla about 'financial rescue' is just a
smokescreen to hide the fact that the same scofflaws who ripped off investors
for zillions of dollars are back for their next big sting; a quick vacuuming of
the public till to save themselves from bankruptcy. It's a joke. Obama floated
into office on a wave of Wall Street campaign contributions and now it's payback
time. Prepare to get fleeced. Geithner is fine-tuning a 'public-private'
partnership for his buddies so they can keep their fiefdom intact while shifting
trillions of dollars of toxic assets onto the people's balance sheet. They've
affixed themselves to Treasury like scabs on a leper. Geithner is 'their guy,' a
Trojan horse for the banking oligarchs. He's already admitted that his main goal
is to, 'keep the banks in private hands.' That says it all, doesn't it?"

Timothy
Geithner, Henry Paulson, Ben Bernanke, Larry Summers, and their cohorts at the
helm of the Bush/Obama financial decision making machine are very smart
individuals. They are among top Wall Street masterminds. The problem is that, at
the core, they are committed, first and foremost, to protecting the interests of
Wall Street financial giants. Indeed, it is safe to say that they are disguised
lobbyists of those financial firms. No matter how hard they try to camouflage
their bailout schemes, or how many different names they use for those schemes,
their starting point is always protection of the insolvent banks.

Just
note the fact that while they have changed the name of their bailout scam a
number of times, the primary objective has not changed. The initial bailout
plan, which announced the giving away of $700 billion dollars of taxpayers'
money, was called Troubled Assets Rescue Plan (TARP).

Half way
through TARP, that is, when it became clear that Wall Street gamblers were
simply grabbing TARP money and hoarding it, Bush's Treasury Secretary Henry
Paulson repackaged the scheme and renamed it as taxpayers' investment or
purchase of "preferred shares of troubled institutions." In plain language, this
simply means paying "cash for trash," as
Michael Hudson, former Wall
Street economist and Distinguished Research Professor at University of Missouri
(Kansas City), aptly puts it. Furthermore, owning "preferred shares" of a bank
means not having a say or an input in the control or management of the bank-that
is, ownership without control.

As the
American people have gradually become aware of and resistant to these fraudulent
rescue plans, the schemers have become more cunning: they have now labeled the
latest version of the bailout scam "private-public" investment partnership.

This
"private-public" partnership scheme, as formally announced by the new Treasury
Secretary Timothy Geithner on 10 February 2009, is designed to accomplish two
things: first, to justify the giving away of the remainder of the TARP money;
second, to pave the way for additional bailout giveaways-purportedly to the tune
of $2.5 trillion.

Formally, the "private" component in this so-called partnership investment means
that hedge funds, private equity funds, and investment banks would now join the
government in purchasing the toxic assets of the troubled banks. While this is
designed to show that "private participation" in the rescue scheme would
diminish the need for public money and, accordingly, reduce taxpayers' burden,
in reality, it would not; because the projected private investment is
conditioned upon public funding and/or guarantees of that investment. In other
words, the so-called private participation in the bailout scam is essentially a
roundabout way of public funding of the scam.

To
camouflage this pile of dirt, as well as to underhandedly pave the way for
asking additional $2.5 trillion of public money for Wall Street's zombie banks,
was bound to make the "private-public" partnership scheme vague and
unpersuasive. Not surprisingly, the moment Geithner announced the plan the
market stampeded, as investors clearly saw right through the gaping holes of the
Machiavellian plan-by the time Geithner was done with his press conference, the
Dow Jones stocks fell 382 points.

A
government "of the people, by the people, for the people" would start from the
goal of finding a solution to the financial crisis that is based on national
interests, and then would look at the implications of such a solution for the
insolvent banks. Instead, the Bush/Obama administrations start from the
objective of saving the insolvent banks, and then look for a "solution" that
would accommodate this objective!

When
asked why he was selecting an economic team of neoliberal economists who played
critical roles in bringing about the current financial meltdown, President Obama
gave a most bogus, obfuscating and, uncharacteristically stupid, reason: "I have
to choose from the pool of experts who know how financial markets work."

Yes, Mr.
President, they certainly know how Wall Street financial giants work. The
problem is that they are disguised lobbyists of those financial giants.

There is
strong evidence that not only does President Obama's team of economic advisors
owe their professional advancement to the Wall Street cartel of financial firms,
but also the President himself is greatly indebted to the cartel for its
behind-the-scene promotion of his presidential candidacy, and for their generous
contributions to his campaign. Contrary to Barack Obama's claim that his
campaign was not funded by Washington lobbyists,
Evidence shows that the
campaign "received over $10 million in contributions from Wall Street, the
largest contributors by far."

According to Pam Martin, a Wall Street veteran
of 21 years and now an investigative reporter, the top seven donors to Obama's
campaign were Wall Street financial giants. These seven (in order of money
given) were:

"Goldman
Sachs, UBS AG, Lehman Brothers, JP Morgan Chase, Citigroup, Morgan Stanley and
Credit Suisse. There is also a large hedge fund, Citadel Investment Group, which
is a major source of fee income to Wall Street. There are five large corporate
law firms that are also registered lobbyists; and one is a corporate law firm
that is no longer a registered lobbyist but does legal work for Wall Street. The
cumula­tive total of these 14 contributors through February 1, 2008, was
$2,872,128, and we're still in the primary season."

Political and/or policy implications for the American people are clear: Wake
up before it is too late.

If this
sounds conceited or condescending, I apologize. I have no doubts that the people
will eventually wake up to the tremors of this brutal economic crisis-as many
who have lost their jobs and their homes already have. The important thing,
however, is to wake up now; to wake up before it is too late-before the rapidly
gaping cracks in our economy turn it into a sinking Titanic.

It is
time to wake up now before Wall Street Financial Giants and their
government-yes, it is primarily their government-destroy our economy and
bankrupt our nation in their reckless commitment to rescue financial zombie
firms at any price.

There
is, however, no reasonable price that can rescue the insolvent Wall Street
gamblers; they have simply accumulated too much bad debt to be bailed out. The
only price seems to be the further hollowing out of our treasury, the mortgaging
of our (and our children's) future, the worsening and prolonging of the crisis
and, ultimately, the complete breakdown of our economy-and very likely of the
entire world.

So, once
again, it is time to rise up before it is too late; to rise up and demand (not
beg or appeal to politicians, which has been proven to be futile) people's
rightful ownership of the insolvent banks, as we have already paid for their net
assets
many times over.

It is
equally important to demand nationalization of the Federal Reserve Bank (just as
central banks are publicly-owned in most countries of the world). There is
absolutely no reason for a private entity (called the Federal Reserve Bank) to
be in charge of the indisputably most important national economic
decision-making: creation, control and management of the nation's money. It is
utterly preposterous for the government to have granted a private bank the right
to print our money, and then borrow it back from the bank at interest! (Interest
payment on national debt is the third largest item, after military spending and
Social Security outlays, in the Federal budget.)

Once the
all-important task of money creation is brought under public control, and the
insolvent Wall Street zombie banks are nationalized, the government can then use
the publicly-owned banks and issue loans at reasonable rates, thereby unfreezing
credit markets and rekindling investment and economic activity.